Eurozone inflation increased to 2.3% in November, surpassing the European Central Bank’s 2% target, according to Eurostat. This rise followed a 2% inflation rate in October, with economists predicting the 2.3% figure. Price increases have been edging higher for two consecutive months, after dropping to 1.7% in September, largely due to easing energy price declines.
Core inflation, which excludes volatile categories like energy, food, alcohol, and tobacco, remained steady at 2.7% for the third month in a row. This rate is being supported by persistent inflation in services, which decreased slightly to 3.9% from 4% the previous month.
The markets are now expecting the European Central Bank (ECB) to implement a 25-basis-point interest rate cut in December, marking its fourth rate reduction this year. Speculation of a larger 50-basis-point cut has waned following slight improvements in the eurozone’s growth outlook and the inflation rebound.
Despite inflation coming in slightly above forecasts in October, ECB policymakers, including Isabel Schnabel, have emphasized the need for caution when easing monetary policy. The ECB’s December decision will be based on updated macroeconomic projections and will also consider global factors, including the potential impact of U.S. President Donald Trump’s policies, such as trade tariffs, on European Union exports.
Market analysts, such as Kyle Chapman, attribute the inflation rise mainly to annual fluctuations in energy prices, noting that services inflation saw a notable decrease. Despite this, Chapman forecasts that inflation will return to the ECB’s 2% target next year. Melanie Debono, a senior economist, suggests that low unemployment and rising wage growth will prevent a larger rate cut. The ECB’s final decision will be a close call, with the more dovish members pushing for a bigger reduction. If the bank proceeds with a 25-basis-point cut, further reductions may follow in the first quarter of 2024.
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